The simple way to attract more taxpayers and raise more tax revenue

THE current disclosure that the mega-rich pay very little in taxes must be cruelly contrary to Gordon Brown's redistributive instincts. He cannot impose conventional taxes - those you and I pay - as the opulent would flee our shores.

Until Mohamed al-Fayed forfeited his personal tax treaty in the High Court in Edinburgh, who would have appreciated that this stupendously rich Egyptian was domiciled in Easter Ross in his sumptuous castle? He may enjoy the midges of the Scottish Highlands but the tax dimension must have been a compelling factor.

Most of the outraged comment has assumed the Inland Revenue should jump upon the wealthy expatriates among us. I have a better idea. Let us bring the tax obligations upon all of us into line with those imposed on billionaires.

This illuminates a great paradox. We think the big tax havens are the obscure Caribbean islands plus Hong Kong and Singapore. We forget that, given enough cash, Edinburgh outranks all these locations as a place where capital is safe from the taxman.

The Adam Smith Institute computes that the average reader of The Scotsman works for the state until early June each year. It is not just income tax and national insurance that add up but all the other little and large taxes, such as vehicle taxes. So, I can understand the sentiment that the rich should pay proportionately.

It is an error. Scotland needs to remain a tax haven or there will be a flight from our financial institutions.

The OECD lists 40 tax jurisdictions that it says are unfairly liberal and relaxed. This is pure humbug. The UK is a very safe jurisdiction - and its burden is lower than those of the familiar tax haven regimes on tropical atolls.

I have never seen a public registering of the fact that the International Monetary Fund identified the UK as the most attractive tax haven on the planet - if you can negotiate non-domiciled status with the Inland Revenue. This is not ineptitude on the part of the taxmen - 10 per cent of £1 billion makes the state richer than a zero contribution that results from a wealthy family's flight.

We barely perceive a highly important fact. There is competition in taxation. Nations have to compete for the mega-rich. It is the rest of us who are held captive.

When George Bush hurried through Albania recently, who spotted that this newly liberated nation had cut its personal taxes and corporate taxes to a uniform 10 per cent? There are none of the complicated footnotes, exemptions, subsidies, or allowances that bamboozle every Scots tax payer.

This is the great paradox, which is as important as realising the world is round, not flat: lower taxes enhance the tax revenue.

All across the former socialist, high-taxation states of eastern Europe tax rates are tumbling - becoming both lower and simpler. There are now 17 flat-tax, low-tax nations. The top rates of personal income tax have dropped by 25 percentage points. Corporate tax rates have fallen 20 points over the same period.

What seems to be at work is a subtle and silent lowering of taxes upon wealth. The highly prosperous are tax-savvy. They buy agile advice from lawyers and accountants and pay the minimal dues.

Look at inheritance tax. Parliament keeps thinking the government is creaming the rich, or the deceased rich. In fact, all of the wealthy take utterly legal tax-avoidance measures. Inheritance tax hits the middle classes, who never realised an average parental home presents opulence to the Revenue.

Alex Salmond has the discretion to cut 3p off Scottish income tax rates. I urge him to try it. He would enjoy not only popularity but a quick migration of people over the Border. Other taxes remain purely a matter for the Treasury in London, but the Scottish Executive is aware of the need to let the highly wealthy feel welcome and to buy up Highland estates and some of the prime property in the Edinburgh New Town.

We are about to see a wide halo of prosperity, with a Saudi Arabian expat erecting a vast sequence of projects around Southern Perthshire's Blackford Estate. How much more benign this is than a few more scattered council houses.

I also think there is a libertarian agenda in these themes. If the Inland Revenue really did try to hit the wealthy as it does the ordinary Scot, it could only do so through immense intrusion into personal privacy.

What Scotland needs is a popular clamour for sharply lower and simpler taxes. My ideal is a tax return no bigger than a postcard.

We might look to the Conservatives to take up this idea, but timidity seems to have engulfed them. They seem to have forgotten already that when, under Margaret Thatcher, they slashed to top rates of tax, the brain and fame drain went into reverse. Wealthy stars such as Michael Caine came back to the UK. Thousands of entrepreneurial spirits returned unseen.

In the meantime, anybody with really chunky sums of capital ought to feel entirely welcome in Scotland - and securely so for the future.

Edinburgh is a very elegant tax haven even if it sometimes lacks sunshine.

 John Blundell is director-general of the Institute of Economic Affairs.